Fund Accounting and Internal

Financial Reporting

DOSEN PENGAMPU:

DR. HEINCE RUDDY NICKY WOKAS

KELOMPOK 3:

SHERLY LOHONAUMAN
RAYMOND RUSSEL PEYOH
HARKE RL POLII
 Learning Objectives

4.1 Fund Accounting Defined

4.2 Categories of Funds
4.3 Alternative Fund Groupings
4.4 Typical “Fund” Financial Statements
4.5 Transfers between Funds
4.6 Elimination of Funds for Reporting
Purposes
4.7 Conclusion
 4.1 Fund Accounting Defined

Fund accounting is a system of accounting in which

separate records are kept for :
Resources donated to an organization that are
restricted by donors or other outside parties to certain
specified purposes or use
Portions of an organization’s unrestricted resources
that the board has set aside for some specified future
use
All other unrestricted amounts
This need for separate accountability arises whenever a not-for-
profit organization receives restricted contributions. For example :

 The Johnstown PTA receives a special contribution of $15,000,

which the donor specifies is to be used only in connection with
an educational program on drug abuse.
 The Bethesda Methodist Church decides that they need an
addition to the Church, and a building fund drive is established
to raise $200,000. Contributors are told the money will be used
only for this building addition.
 The Boy Scout Council of Arlington receives a $250,000 gift
from an ex-Boy Scout to be kept as a permanent endowment
fund.
 The Kennebunkport Civic League receives a gift specified by the
donor as being for use in the following year only.
 4.2 Categories Of Funds

a. Current Unrestricted Fund

b. Current Restricted Fund
c. Restricted Endowment Fund
d. Fixed-Asset Fund
e. Other Types of Funds
 Categories Of Funds (1)

 Current Unrestricted Fund

Several titles are given to the fund that includes the general activities of the
organization.

 Current Restricted Fund

Various titles are given to the fund that accounts for resources given to an
organization to be spent as part of its normal activities but only for specified
purposes.

 Restricted Endowment Fund

This title is given to the fund that contains resources donated to the
organization with the stipulation by the donor that only the income earned by
these assets can be used while the original gift is kept intact, either forever
(permanent endowment) or for a stated time (term endowment).
 4.3 ALTERNATIVE FUND GROUPINGS

 Expendable and Nonexpendable

 Managed Fund Groups

 4.3 ALTERNATIVE FUND GROUPINGS (1)

Expendable
 Current unrestricted funds
 Current restricted funds
Nonexpendable
 Fixed-asset funds
 Endowment funds

Managed Fund Groups

These organizations typically have three groups:
1. Operating funds (including current unrestricted and current restricted
funds)
2. Plant funds (as described earlier)
3. Endowment funds (which, in this format only, may include
boarddesignated endowment funds)
 4.4 TYPICAL "FUND" FINANCIAL STATEMENTS

Exhibit 4.1 shows the simplified statements of a not-for-

profit organization having the traditional four separate
funds: a current unrestricted fund, a current restricted fund,
a fixed-asset fund, and an endowment fund. This
presentation is typical of a small organization using fund
accounting. The format makes separate accountability of
each fund quite evident. It also shows the main problem
associated with fund accounting: the difficulty in getting an
overall picture of the organization's affairs without a careful
review of all the statements
Exhibit 4.1
Exhibit 4.1
 4.4 TYPICAL "FUND" FINANCIAL STATEMENTS (1)

 The principal advantage of fund accounting is that the activities of each

fund are reported separately. Accountability is quite evident because the reader
can see exactly what has taken place. This is the stewardship aspect.
The principal disadvantage of fund accounting is that it is difficult to
comprehend the total activities of the organization without a careful review of
all the statements and perhaps a little bit of pencil pushing. For example, what
was the total excess of income over expenses for all funds? To answer this
question it is necessary to add three figures. Be careful to pick out the right
figures ($33,000 + $1,000 + $71,000 = $105,000). In addition, statements such
as these may only be utilized for internal financial reporting; changesthis
question it is necessary to add three figures. Be careful to pick out the right
figures ($33,000 + $1,000 + $71,000 = $105,000). In addition, statements such
as these may only be utilized for internal financial reporting; changes would be
necessary if the organization were being audited.
 Interfund Borrowing

Two words of caution with respect to interfund borrowings:

a) A fund should not borrow from another fund unless it is clear that the
borrowing fund will, within a reasonable time, have the financial resources
to repay the amount borrowed. It is not appropriate financial management to
finance a deficit operation on an ongoing basis through interfund borrowing
b) Before resources are borrowed from legally restricted funds, advice should
be sought from legal counsel as to whether such borrowings are permissible.
It would appear entirely inappropriate for an organization to raise funds for
a building and then "lend" such amounts to help finance general operations
of the organization.
 4.5 TRANSFERS BETWEEN FUNDS

Transfers should not be shown as an expense or as

income. This is because only transactions that result in
expense or income to the organization as a whole are
shown in the expense or income sections of a financial
statement.
The most effective way to present a transfer between
funds with a minimal risk of misunderstanding is in a
columnar statement, with the activity of each fund
shown in a separate column, side by side.
 4.6 ELIMINATION OF FUNDS FOR REPORTING PURPOSES

In either case, for reporting purposes the organization

must carefully combine all the activity for the year in a
meaningful manner. This is not always easy to do but, if
carefully done, adds greatly to the reader’s
understanding of the organization’s overall financial
picture.
 4.7 CONCLUSION

Fund accounting is simply a commonsense answer to

the problem of recording amounts given to an
organization for restricted purposes.
Fixed Assets and Depreciation
DOSEN PENGAMPU:

DR. HEINCE RUDDY NICKY WOKAS

KELOMPOK 3:

SHERLY LOHONAUMAN
RAYMOND RUSSEL PEYOH
HARKE RL POLII
 Learning Objectives

5.1 General Principles—Working Definitions

5.2 Property and Equipment—Classes and Kinds
of Assets
5.3 Fixed Assets Where Title May Revert to
Grantors
5.4 Collections
5.5 Fair Value Measurement
5.6 Contribution Restricted for Purchase of
Fixed Assets
5.7 Impairment or Disposal of Long-Lived Assets
5.8 Conclusion and Recommendations
 5.1 General Principles—Working Definitions

a. Capitalization of Fixed Assets—Establish a

Threshold
b. Capitalization of Fixed Assets—Establish a
Reasonable Useful Life
5.2 Property and Equipment—Classes and Kinds of Assets

Property and equipment commonly held by not for-profit

organizations include the following :
1. Land
2. Land improvements, buildings, building improvements,
equipment, furniture and office equipment, library books,
motor vehicles, and similar depreciable assets.
3. Leased property and equipment.
4. Improvements to leased property.
5. Construction in process costs.
6. Contributions of property and equipment.
7. Unconditional promises to give the use of long-lived assets.
8. Computer equipment and costs to increase the functionality of
computer equipment or software.
5.3 FIXED ASSETS WHERE TITLE MAY REVERT TO GRANTORS

Some organizations purchase or receive fixed assets under

research or similar grants or contract awards in which
legal title to the assets remains with the grantor agency. At
the completion of the award period, the right to these
fixed assets reverts to the grantor agency.
 5.4 COLLECTIONS

 Collections are works of art, historical treasures, or similar assets that

are (1) held for public exhibition, education, or research in furtherance of
public service rather than financial gain; (2) protected, kept unencumbered,
cared for, preserved; and (3) subject to an organizational policy that
requires the proceeds of items that are sold to be used to acquire other
items for collections (4)
 An organization must adopt a policy for the treatment of collections.
The policy is defined by FASB SFAS 116 and may be one of three choices:
• Capitalize the collection, including all items acquired in prior periods
that have not been previously capitalized and all items acquired in future
periods.
• Capitalize only those items acquired after initial adoption of SFAS 116.
• Capitalize no collections.
 5.5 FAIR VALUE MEASUREMENT

An organization will consider the fair value of long-lived

assets when circumstances require that an asset be valued
for reporting a contribution of a long-lived asset or in the
case of impairment. In any case, quoted market values in
active markets are the best evidence of fair value and
should be used, when available.
 5.6 CONTRIBUTIONS RESTRICTED FOR PURCHASE
OF FIXED ASSETS

Many nonprofit organizations solicit funds for the

express purpose of building or improving physical
property. Contributions so received are typically
recorded as temporarily restricted support (if the
building or physical property is incomplete) until such
time the building is placed in service when these
temporarily restricted contributions are released from
restriction. However, the organization may define its
accounting policy to afford better matching of
contributions and related depreciation expense.
5.7 IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

When there is a change in an asset’s use or a known decline in its market value, then the
organization must measure the potential impairment of its carrying value

Consideration of Impairment:
SFAS 144 lists several situations that may trigger the need to an impairment valuation. Specifically, per
paragraph 8: A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. The following are examples of such
events or changes in circumstances:
a. A significant decrease in the market price of a long-lived asset (asset group)
b. A significant adverse change in the extent or manner in which a longlived asset (asset group) is being used or
in its physical condition
c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-
lived asset (asset group), including an adverse action or assessment by a regulator
d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset (asset group)
e. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset
group)
f. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life.
5.7 IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (a)

(b) Consideration of Disposal—Assets Held for Sale

An asset is considered held for sale when the following

conditions exist:
 The asset must be available for immediate sale in its
current condition, subject only to terms that are usual
and customary for sales of such assets.
The sale of the asset must be probable, and its transfer
expected to qualify for recognition as a completed sale,
within one year, with certain exceptions.
5.7 IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (b)

(c) Consideration of Retirement Obligations

Examples of situations where an asset retirement obligation and

asset retirement costs might need to be recorded by a not-for-
profit organization would include, among others:
The removal of an underground fuel storage tank
The dismantling of a cogeneration plant
A requirement to undo modifications made to leased property
A gift of a building with stipulation from the donor that after
10 years the building is to be destroyed and the land converted
into a garden
 5.8 CONCLUSION AND RECOMMENDATIONS

The organization should adopt methods of accounting and

reporting appropriate to its activities and to the needs of the
users of its statements
Organizations that are reporting financial information in
accordance with generally accepted accounting principles
should record, and not expense, fixed assets
As appropriate, the organization should define a policy for
recognizing contributions restricted for the purchase of fixed
assets, acceptance criteria for in-kind contributions and
contributions of long-lived assets, and procedures to
estimate and document fair value in the event of impairment,
disposal or in consideration of retirement obligations